How Many New Dwellings Are Not Being Built?

Winston Churchill once said, “The farther backward you can look, the further forward you are likely to see”.

Now, take a look at chart 1.

It shows that our new housing market is a very cyclical one.

Over the last twelve months, 230,000 new dwellings started construction across the country.

This is a record.

And this level of new building activity continues to defy the odds – falling population growth, increasing household size and lacklustre investor sentiment, especially for new attached dwellings.

So, getting back to Winston and his quote, the new housing market isn’t “different this time” and will follow past patterns.

The current escalation will meet its equivalent fall.

Chart 2 suggests that we are already oversupplying the housing market.

We are looking at housing starts here, not approvals.

We also remove 10% of the new starts from the mix, as one in ten residential properties, on average, is locked up across the country.

Plus, we have a proven (albeit evolving) model to help us estimate underlying housing demand.

In short, our measure is a very conservative one; and yet, it still shows increasing overbuilding of new homes.

Chart 3 shows the number of dwellings approved, but not yet started.

It is one of those property charts where, if the lines go down, it is a good thing.

At present, some 38,000 detached houses have been approved but haven’t yet commenced construction.

This is about a third of last year’s house approvals.

Semi-okay, here.

But it is the attached dwelling figures that are alarming, with some 100,000 apartments/townhouses approved, but still waiting in the wings.

This is 85% of last year’s attached dwelling approvals.

Taking a longer view, these 100,000 represent 45% of the last two years’ approvals, or 28% of the last three years. Also, records.

Some observations

We are overbuilding again, and to rub salt into the wound, we are building too much of the wrong stock.

There is a need for more well-proportioned and designed apartments, in smaller complexes across our middle and even outer suburbs – not everywhere, of course, but in specific locales which help offset the increase in density.

There is a need for more townhouses, ‘plexes’ and dual+ occupancy style homes, too – what we call the Double C.

The current new apartment debate seems to have focused on the wrong things – short-term supply versus demand, falling apartment size, buyer origins and low affordability – rather than the things that really matter, like the project’s location and actual position; its design, including, importantly, the apartments themselves and the quality of build and onsite management. Downtown apartments have never been ‘affordable’- great proximity precludes being cheap.

As we have pointed out before, not all apartments are now mutts (with fleas). Far from it. There is nothing wrong with buying downtown, for that matter, as well.

The development community has largely operated within the existing legislative framework. Some have taken the low road, for sure, but that route applies across all endeavours, not just property development. Yet, too many of us are quick to blame those bastard developers for building too many apartments, and not enough of what we really want.

But often, what we want means change. The front page of the local rag typically features a middle-aged group – looking very stern and serious – protesting about the new local townhouse or infill apartment project. Such projects often don’t proceed. We need to also cut out much of the government red tape. Additionally, what is known as ‘town planning’ these days, is a major stumbling block to supplying what the market wants. Development taxes and charges apply here too, as do agency fees. We need a Ministry of Housing like a hole in the head – less bureaucracy, not more!

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Michael is director of independent property advisory Matusik Property Insights. He is independent, perceptive and to the point; has helped over 550 new residential developments come to fruition and writes his insightful Matusik Missive

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